He stated that "there were paid to creditors, or exchanged for coin at par, at different dates, in July and August, six per cent. two years' notes, to the amount of $14,019,034.66; there was borrowed at par. in the same months, upon sixty days' six per cent. notes, the sum of $12,877,750; there were borrowed at par, on the 19th of August, under three years' seven-thirty bonds, issued for the most part to subscribers to the national loan, $50,000,000; there were borrowed at par for seven per cent., on the 10th of November, upon twenty years' six per cent. bonds, reduced to the equivalent of sevens, including interest, $45,795,478.48; there have been issued, and were in circulation and on deposit with the treasurer on the 30th of November, of United-States notes payable on demand, $24,550,325,—making an aggregate realized from loans in various forms of $197,242,588.14." The loan operations had therefore been fairly successful, for they were still in progress; and President Lincoln was justified in stating in his message that "the expenditures made necessary by the Rebellion are not beyond the resources of the loyal people, and the same patriotism which has thus far sustained the government will continue to sustain it, till peace and union shall yet bless the land."
But the shadows were growing thick, and the situation was very serious. Mr. Chase was compelled to report that his estimates of revenue must be reduced below the figures which he gave in July by $25,447,334: at the same time the expenditures must be reckoned at an increase of $213,904,427. Predictions as to the speedy close of the war had ceased. Provision must be made, not only for the deficiencies presented, but for the ensuing year, during which the secretary estimated that the expenditures would be $475,331,245. He proposed to amend the direct tax law, so as to collect under it $20,000,000; to establish a system of internal revenue as he had suggested in July, and to increase some of the customs duties. From these sources, united with the receipts from the public lands, the revenue would be $95,800,000. With this basis, reliance must be placed on loans for the enormous sum of $654,980,920, and under existing laws he could borrow only $75,449,675.
The sale of public lands had furnished some part of the resources of the nation from an early day. The annual product had not been large as a rule. In 1834 and 1835 the sales had been abnormal, amounting in the latter year to $24,877,179, and only about $10,000,000 less in the preceding year. They were $11,497,049 in 1855, but they had fallen until they were less than $2,000,000 in 1859. It was natural to consider whether any help could be derived from this quarter in the hour of national necessity. A forced sale of lands was impossible to any such extent as to affect the receipts of the Treasury in the ratio of its demands. The pledge of the domain as security for loans was suggested only to be rejected. As was natural, purchases of the public domain ceased almost entirely while the young men of the country were summoned to the national defense, and the better strength went into the field of battle. From the public lands therefore the Treasury could hope for little, and very little was in fact received from them during the Rebellion. Secretary Chase had estimated in July that $3,000,000 might be annually derived from this source; but the receipts from the sales of lands never reached even $1,000,000 a year until two years after the Rebellion had been suppressed. Practically the public lands passed out of consideration as a source of revenue. Unfortunately also the attempt to levy a direct tax was received by the people with grave manifestations of disapproval. Its enforcement was likely to prove mischievous. The close of the year 1861 was therefore heavy with discouragement to the government. The military reverses at Bull Run and Ball's Bluff had outweighed in the popular mind the advantages we had gained elsewhere; the surrender of Slidell and Mason, though on every consideration expedient, had wounded the national pride; and now the report of the Secretary of the Treasury tended to damp the ardor of those who had with sanguine temperament looked forward to an easy victory over the Rebellion.
SUSPENSION OF SPECIE PAYMENT.
It was felt by all that the National credit, which had been partially restored under Mr. Chase's administration of the Treasury, could not be maintained except from the pockets of the people, and that every man must expect to contribute of his substance to the support of the government in the great task it had assumed. Happily all considerate and reflecting men saw that, desperate as the struggle might be, it must be accepted with all its cost and all its woe. They could at least measure it and therefore could face it. On the side of defeat they could not look. That was a calamity so great as to be immeasurable, and it left to the loyal millions no choice. If the struggle then in progress had been with a foreign power, popular opinion would have overthrown any administration that would not at once make peace. But peace on the basis of a dissevered Union, a disintegrated people, a dishonored nationality, could not be accepted and would not be endured.
The discouragement in financial circles produced by the Treasury report of Mr. Chase, hastened if it did not cause the suspension of specie payment by the banks of New-York City. Many country banks had ceased to pay specie some time before; indeed, many had been only on a nominal basis of coin since the financial crisis of 1857. So long however as the specie standard was upheld by the New-York banks, the business of the country was securely maintained on the basis of coin. It was therefore a matter of serious moment and still more serious portent that the financial pressure became so strong in the last days of the year 1861 as to force the banks of the metropolis to confess that they could no longer maintain a specie standard. It had been many years since the government had paid any thing but coin over its counters, but Treasury notes had just been issued payable on demand, and many millions were already in circulation. They would now be presented for redemption, and if promptly met, the Treasury would be rapidly drained of its specie. There were twenty-five millions less of gold coin in the government vaults than Secretary Chase had expected. This fact of itself enforced a larger issue of demand notes than would otherwise have been called for, and had thus doubly complicated the financial situation. The Treasury had disbursed a large amount of demand notes and received a smaller amount of gold coin than the well considered estimates of the secretary had anticipated.
The presumption was in favor of our being much stronger in coin than we were found to be. The discovery of gold in California had resulted in an enormous product,—surpassing any thing known in the history of mining. But we had been encouraging the importation of goods from Europe which were confessedly somewhat cheaper than our own fabrics, and in amount largely in excess of our export of cotton and cereals. We were therefore constantly paying the difference in coin. The political economists who had been in control of our finances insisted upon treating our gold as an ordinary product, to be exported in the same manner that we exported wheat and pork. The consequence was that during the decade preceding the war our exports of specie and bullion exceeded our imports of the same by the enormous aggregate of four hundred and fifty millions of dollars. For that whole period there had been a steady shipment of our precious metals to Europe at a rate which averaged nearly four millions of dollars per month.
Advocates of protection had found the drain of our specie the proximate cause of the financial panic of 1857. They now believed that the same cause had produced a suspension of coin payment at a much earlier date than the war pressure alone would have brought it about. They did not lose the opportunity of demonstrating that a system of protection which would have manufactured more and imported less, and which would thus have retained many millions of our specie at home, would have enabled us to meet the trials of the war with greater strength and confidence. If the Morrill Tariff had been enacted four years before, it would have been impossible for Secretary Cobb to stab the national credit. He would have been dealing constantly with a surplus instead of a deficit, and could not have put the nation to shame by forcing it to hawk its paper in the money markets at the usurious rate of one per cent. a month. One of the wisest financiers in the United States has expressed the belief that two hundred millions of coin, which might easily have been saved to the country by a protective tariff between 1850 and 1860, would have kept the National debt a thousand millions below the point which it reached. Of all the arguments with which protectionists have arraigned free-traders, perhaps the most difficult to answer is that which holds them responsible for the weak financial condition of 1860-61 in that they had deliberately driven our specie from the country for the ten preceding years.
CHAPTER XIX.
The Legal-tender Bill.—National Finances at the Opening of the
Year 1862.—A Threefold Contest.—The Country thrown upon its own
Resources.—A Good Currency demanded.—Government takes Control of
the Question.—Authorizes the Issue of $150,000,000 of Legal-tender
Notes.—Mr. Spaulding the Author of the Measure.—His Speech.—
Opposed by Mr. Pendleton.—Position of Secretary Chase.—Urges the
Measure upon Congress.—Speeches by Thaddeus Stevens, Mr. Vallandigham,
Mr. V. B. Horton, Mr. Lovejoy, Mr. Conkling, Mr. Hooper, Mr. Morrill,
Mr. Bingham, Mr. Shellabarger, Mr. Pike and Others.—Spirited and
Able Debate.—Bill passes the House.—Its Consideration by the
Senate.—Speeches by Mr. Fessenden, Mr. Sherman, Mr. Sumner, Mr.
Bayard, Mr. Collamer and Others.—Bill passes the Senate.—Its
Weighty Provisions.—Secretary Chase on State Banks.—Policy of
the Legal-tender Bill.—Its Effect upon the Business and Prosperity
of the Country.—Internal Revenue Act.—Necessity of Large Sums
from Taxation.—Public Credit dependent on it.—Constitutional
Provisions.—Financial Policy of Alexander Hamilton.—Excises
Unpopular.—Whiskey Insurrection.—Resistance by Law.—Supreme
Court Decision.—Case of Hylton.—Provisions of New Act.—Searching
Character.—Great Revenue desired.—Credit due to Secretary Chase.